956 F.3d 1
1st Cir.2020Background
- Wheeling & Lake Erie extended a $6M line of credit to MMA in 2009 and took a security interest in MMA's "Accounts and other rights to payment," perfected by UCC-1.
- In July 2013 an MMA freight train carrying crude oil derailed at Lac‑Mégantic, causing mass damage and litigation; MMA filed Chapter 11 in August 2013.
- The MMA estate (Keach) sued the shipper (Western Petroleum et al.) for negligent mislabeling; the estate settled, obtaining a $110M payment to the Canadian monitor, releases (including of asserted non‑tort claims), and assignments of certain Carmack claims, effective upon plan confirmation.
- Wheeling objected that the released non‑tort claims were part of its collateral and that the estate used that collateral without compensating Wheeling; Wheeling sought valuation under 11 U.S.C. § 506(a)(1).
- After a bench trial, the bankruptcy court ruled for the estate on two alternative grounds: (1) the estate had no cognizable non‑tort claims; and (2) even assuming such claims existed, Wheeling failed to prove their settlement value. The district court found the estate did have non‑tort claims but affirmed on the valuation/burden‑of‑proof ground.
- The First Circuit affirmed, holding Wheeling failed to carry its burden to prove the settlement value of the released non‑tort claims; the court assumed (without deciding) the claims existed and were collateral.
Issues
| Issue | Wheeling's Argument | Keach's Argument | Held |
|---|---|---|---|
| Whether the estate possessed cognizable non‑tort (contract/regulatory) claims that were part of Wheeling's collateral | Wheeling: connecting carriers can enforce through or uniform bills of lading; claims are part of collateral | Keach: connecting carriers are agents and lack independent non‑tort claims | Court: assumed (for appeal) the estate had such non‑tort claims and did not decide the issue |
| Whether Wheeling proved the settlement value of the released non‑tort claims under § 506(a)(1) | Wheeling: stipulation (≥ $25M damages; ≥ $10M net damages) and the settlement package show value exceeding Wheeling's secured claim | Keach: settlement and stipulation do not prove settlement value; Wheeling bore the burden and produced no probative valuation evidence | Held for Keach: Wheeling failed to meet its burden; bankruptcy court's finding not clearly erroneous |
| Whether the fact of the $110M settlement (and release) established the specific value of the non‑tort claims | Wheeling: settlement consideration reflects the value of released claims | Keach: settlement encompassed many items (negligence claims, injunctions, assignments, global peace of mind) so it does not prove a specific value for the non‑tort claims | Held for Keach: settlement alone is insufficient to prove specific settlement value without additional evidence |
| Standard of review / deference to bankruptcy court factual findings | Wheeling: challenges bankruptcy court's valuation approach as legal/error | Keach: factual findings deserve deference under clear‑error review | Court: applied clear‑error review to bankruptcy court findings and deferred; affirmed judgment |
Key Cases Cited
- Keach v. Wheeling & Lake Erie Ry. Co. (In re Montreal, Me. & Atl. Ry., Ltd.), 888 F.3d 1 (1st Cir. 2018) (prior related appellate decision in MMA litigation)
- Wheeling & Lake Erie Ry. Co. v. Keach (In re Montreal, Me. & Atl. Ry., Ltd.), 799 F.3d 1 (1st Cir. 2015) (prior related appellate decision in MMA litigation)
- Privitera v. Curran (In re Curran), 855 F.3d 19 (1st Cir. 2017) (appellate‑review framework for bankruptcy appeals)
- Prudential Ins. Co. of Am. v. SW Bos. Hotel Venture, LLC (In re SW Bos. Hotel Venture, LLC), 748 F.3d 393 (1st Cir. 2014) (preponderance standard for valuation burden)
- Southern Pac. Transp. Co. v. Commercial Metals Co., 456 U.S. 336 (1982) (discusses binding effect of bill of lading terms on shippers and connecting carriers)
- Polis v. Getaways, Inc. (In re Polis), 217 F.3d 899 (7th Cir. 2000) (settlement value of a claim differs from asserted damages)
- Safety Car Heating & Lighting Co., 297 U.S. 88 (1936) (uncertainty of litigation affects claim value)
- Kawasaki Kisen Kaisha Ltd. v. Regal‑Beloit Corp., 561 U.S. 89 (2010) (purpose and operation of the Carmack Amendment)
- Gannett v. Carp (In re Carp), 340 F.3d 15 (1st Cir. 2003) (clear‑error standard for bankruptcy fact findings)